Traders hoping for volatility to pick up are likely to be lucky the week ahead with many key moving events to turn up.
For the past two months, markets were dominated by the Trump trade, but it has clearly cooled down in the past two weeks with the U.S. equities and U.S. dollar pausing for a break. Profit taking took place last week after Donald Trump failed to revive the rally by not providing fresh catalysts on his economic stimulus plans at a press conference on Wednesday. But the President-elect will take office on January 20 and will be given the chance to address the American people on where he’s planning to take the country in the next four years. While we can’t know for certain what his inauguration speech will entail, many hope he will provide more clarity on the key themes brought during his campaign. However, the certain thing is we’re going to see more volatility in 2017 when compared to 2016, so good luck traders.
Ahead of the inauguration, several Fed presidents are due to speak including Fed Chair Janet Yellen. Most monetary policy makers agree that three interest rate hikes are a very possible scenario, meanwhile markets only believe two will take place. Previous experience proved that markets had a better judgment on the path of interest rates, however, this time it’s going to be more challenging as a major unknown factor may influence projections, which is fiscal stimulus plans. How much of the fiscal plans will be implemented depends largely on how fast Trump can get the congress green light, the faster Trump gets the greenlight the higher the dollar likely to go.
U.S. markets will be closed Monday to commemorate Martin Luther King. The U.S. economic calendar begins to heat up on Wednesday with the release of inflation data and industrial production followed by housing starts and building permits on Thursday. It’s another important week for U.S. financials with Morgan Stanley, Goldman Sachs, and Citi due to release their Q4 earnings.
Pound traders will be anxiously awaiting Theresa Mays’ Brexit speech on Tuesday. Whether GBPUSD will fall below 1.2 or climb above 1.25 depends a lot on the revealed strategy. Her speech should clearly state whether she’s willing to fight for remaining in the EU’s single market or choose the hard way. However, things may change if the Supreme court decided that May needs to secure the consent of Parliament before triggering article 50, possibly delaying Brexit for couple of months, and thus provide sterling a boost.
The ECB will be meeting on Thursday and most likely keep monetary policy unchanged after the central bank extended and reduced the monthly bond purchases to €60 from €80 in their last meeting. Although it might be considered a non-event, we’ll be carefully listening to Draghi to see if the recent improvement in Eurozone data especially when it comes to inflation, will force the ECB to start considering unwinding their QE policies. Any signs of tapering will be positive for the Euro.